Advisory Opinion to Whitesman (12-2-96)

December 2, 1996

Guy E. Whitesman
Henderson, Franklin, Starnes & Holt, P.A.
1715 Monroe Street
Fort Myers, Florida 33901

RE: Southwest Florida Oral Surgery Associates

This letter responds to your request on behalf of Southwest Florida Oral Surgery Associates (ASFOSA@), a group of oral and maxillofacial surgery practices, for the issuance of an advisory opinion regarding the group=s intent to form a ACooperative@ for the purpose of jointly marketing their services to employers, managed care plans, and other payers.

Based on the facts presented in your initial request and subsequent letters, Commission staff would not recommend a challenge to the ACooperative@ if it is implemented in the manner proposed in your letters. This opinion is based on our understanding of the facts as explained in your letters and telephone conversations with FTC staff. We have not conducted an extensive investigation and our assessment could change if the facts or our understanding of the facts change significantly.

The members of the proposed ACooperative@ are three practice groups, each of which is located in a different city in Southwest Florida. The members of the proposed ACooperative@ are 1) Dr. Patricia Nickelson, D.D.S.; 2) Drs. Gerald Laboda and Frank P. DiPlacido, P.A., d/b/a Southwest Florida Oral Surgery Associates; and 3) Dr. Harvey S. Satz, D.M.D., P.A., d/b/a Gulfcoast Oral and Maxillofacial Surgery Associates. The member practices (APractices@) provide oral and maxillofacial surgery services to residents of the following counties in southwest Florida: Charlotte, Collier, DeSoto, Glades, Hendry, Lee, and Sarasota.

According to your letters, the Cooperative will jointly market its services to employers, managed care plans, and other payers. Each Practice will engage in group purchasing, joint marketing, and sharing of medical information systems. Each Practice will continue to operate individually and to provide its own claims processing and other administrative functions. The Cooperative will not provide utilization review or quality assurance monitoring on behalf of its members.

The Cooperative will employ a Amessenger model@ to solicit payer and managed care contracts. The Cooperative will designate an employee of one of the Practices as a Amarketing representative,@ who will seek to locate insurers, managed care plans, and third-party payers that desire to negotiate with any one or more of the Practices. The marketing representative will serve as a conduit for communication between the membership and third-party payers. The salary of the marketing representative will be equally apportioned among the three Practices.

The marketing representative will not negotiate with payers or enter into contracts on behalf of the Practices. Instead, the marketing representative will circulate any proposed contracts or offers received from third-party payers to the members individually, each of whom will be free to accept or reject such offers, or to negotiate terms directly with the payer. Participating members will not discuss among themselves the terms of any contract offers. According to your submission, the marketing representative is specifically prohibited from the following:

  1. informing any of the individual practices with respect to terms that any of the other Practices may have accepted, rejected or negotiated with respect to any contract with a Payor;
     
  2. participating in any way in the decision by the Practices, including the Practice he or she is employed by, as to whether to accept or reject the terms of any contract brought to them through the Cooperative; and
     
  3. sharing with any Practice the terms accepted or rejected by any of the other Practices in the past in connection with contracts entered into through, or presented by, the Cooperative.

Member participation in SFOSA will be non-exclusive; members of the Cooperative will have the ability to join in other networks and to market their Practices independently of SFOSA. The Cooperative will not require that all Practices enter into any particular service agreement or bar participants from entering into other arrangements not offered to all the Practices through the Cooperative.

Discussion

Based on your description of the proposed operation of SFOSA as summarized above, the proposed structuring of SFOSA=s operation does not appear to involve a horizontal agreement on price-related terms. As is discussed in Statement 9 of the Health Care Statements, use of the messenger model to avoid a horizontal agreement on price terms can avoid concerns about price-fixing among the members through the Cooperative. Moreover, the Cooperative does not propose to agree on other terms of dealing with payers.

Based on your representations, it is our understanding that SFOSA=s marketing representative will simply transmit information and contract offers between payers and Cooperative members. The marketing representative will provide each payer=s proposal to Cooperative members, but will not negotiate fees or other terms on their behalf. Cooperative members will make individual determinations about whether to accept the terms offered by payers. Thus, no issue regarding a horizontal agreement on prices appears to be presented under the facts as we understand them. Furthermore, SFOSA maintains that it will not enter into other potentially anticompetitive agreements on terms of dealing with payers, and the facts do not suggest other reasons that would raise concerns about anticompetitive effects.

For these reasons, the formation and operation of SFOSA as proposed in your letters would not appear to violate any law enforced by the Federal Trade Commission. This letter sets out the views of the staff of the Bureau of Competition, as authorized by the Commission=s Rules of Practice. Under Commission Rule ' 1.3(c), 16 C.F.R. ' 1.3(c) (1994), the Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the questions involved and, with notice to the requesting party, to rescind or revoke the opinion if implementation of the proposed program results in substantial anticompetitive effect, if the program is used for improper purposes, or if it would serve the public interest to do so.

Sincerely,

Robert F. Leibenluft
Assistant Director